Facts and Background:
Action for insurance bad faith based on Roe Insurance Company’s wrongful withdrawal of its defense of, and refusal to settle, a Civil Lawsuit filed against Plaintiff.

In the Civil Lawsuit, Plaintiff was charged with negligently hiring and inadequately supervising her husband, who was accused of molesting children at the family’s daycare facility. Plaintiff was neither accused of, nor charged with participating in, the alleged molestation. Rather, her potential civil liability was based upon her alleged independent failure to recognize and stop her husband’s alleged wrongdoing. Insurance Company initially agreed to defend Plaintiff in the Civil Lawsuit. However, it later abandoned the defense and rejected a $100,000 policy limits demand because Plaintiff’s husband had been convicted on charges of molestation at the trial court level. When Insurance Company withdrew the defense, the conviction was on appeal. (The conviction was later reversed, and the charges dismissed.) Lacking the funds to defend herself, Plaintiff suffered a verdict of $2,806,000.

Plaintiff’s Contentions:
Policy exclusions barring coverage for claims arising out of any dishonest, fraudulent, criminal or malicious act and claims for loss arising out of the willful violation of a penal statute or ordinance committed by, or with the knowledge of any Insured directly (1) conflicted with the more precise language of the Endorsement, which specifically added coverage for losses arising out of willful criminal acts such as child molestation; and (2) deleted the exclusion for any claim or loss arising out of an allegation that any Insured is liable for, intentionally or unintentionally, hiring, employing, supervising, failing to supervise, or failing to prevent any other person who engages in child abuse.

Defendant’s Contentions:
Insurance Company withdrew its defense on the grounds that the policy excluded coverage for the criminal acts of any insured. During the pendency of this suit, Insurance Company also asserted that plaintiff made material misrepresentations on her application for insurance, and that the Policy was therefor void ab initio.

Damages:
Verdict in the underlying Civil Lawsuit in the amount of $2,806,000.